Sergey Nazarov, co-founder of Chainlink Labs, stated that with Paul Atkins taking over as chairman of the U.S. Securities and Exchange Commission, the path to the tokenization of the financial system has become clearer.
According to Nazarov in an interview with Cointelegraph, this process is not easy, as there are various challenges in areas such as data tokenization, cross-chain connectivity, and compliance. However, once achieved, its impact will be profound.
Data shows that the current market capitalization of all cryptocurrencies globally is approximately $4 trillion. Nazarov indicated that if traditional financial assets are tokenized and brought on-chain, the overall market capitalization could potentially increase by more than tenfold.
"People do not fully realize the enormous scale of traditional finance," Nazarov said.
A recent report from Boston Consulting Group shows that by 2024, the total assets under management (AUM) in the global asset management industry will reach a record $128 trillion, a year-on-year increase of 12%. Most of these assets are controlled by institutional investors, including insurance companies, pension funds, sovereign wealth funds, endowment funds, and family offices.
Returning to the crypto industry, Nazarov pointed out that its $4 trillion market cap is primarily driven by retail investors. "How much more retail demand can there be? Perhaps it could reach $8 trillion or even $10 trillion, but it will never reach $50 trillion. To achieve $50 trillion, we must rely on traditional finance."
Before U.S. President Donald Trump took office in early 2025, U.S. regulators had warned institutional investors to stay away from the crypto space. "Don't touch these assets; it's illegal," Nazarov recalled. "But now regulators are saying, 'Not only is this not illegal, but we encourage you to participate.'" Nazarov believes that the on-chain movement of a large number of traditional financial assets has become a trend—"as long as there is no significant downturn in the macroeconomy."
The so-called "collapse" refers to a shift in the economic environment from risk appetite to risk aversion. It does not necessarily require significant economic turmoil (like the Great Depression); even a mild recession could lead to "risk aversion."
Nazarov stated, "All newly tokenized assets need to have an active market where people are willing to try new things, trade, and invest capital in new financial instruments."
However, even if the economy experiences a downturn, tokenization will eventually be realized, albeit at a slower pace. "Currently, the overall environment is positive: the market expects interest rates to be lowered, and the SEC chairman has publicly stated that everything will be tokenized. I can hardly imagine a more favorable situation than this."
When Trump runs for president again in 2024, he referred to himself as the "crypto president." In Nazarov's view, he has fulfilled that promise so far.
Nazarov recalled, "We began discussions with the SEC earlier this year," and he has communicated with SEC Commissioner Hester Peirce (appointed during Trump's first term) and her team. "I believe she received the green light earlier this year to advance related work." This was even before the U.S. Senate confirmed Atkins as chairman on April 9.
"So, the relevant work has already begun; it just became more public once the chairman was confirmed. By then, people were no longer worried about risks and doubts."
In May, Cointelegraph reported that tokenization is reaching a moment of explosion. Companies like BlackRock, Libre, and MultiBank have launched billion-dollar tokenization projects, "marking the transition of tokenization from theory to practical execution."
Parallel to and even synergistically developing with the tokenization process is the continuous evolution of blockchain oracles, which is also the core business of Chainlink.
Oracles are entities that connect blockchains with external systems. For example, a "pull oracle" can obtain real-world data from off-chain and relay it to the blockchain network for use in smart contracts. This information can include stock or cryptocurrency prices at a specific moment.
"Push oracles" are more complex and less common; they allow smart contracts to send instructions to off-chain systems to prompt them to perform specific actions. For instance, an oracle could "wake up" an IoT system to unlock a car door after confirming a rent payment on the blockchain, enabling real-world operations.
Chainlink is the world's largest oracle provider, with over 1,000 oracles covering about 15 major categories, including data, cross-chain connectivity, compliance, identity verification, and risk management. Some projects currently involve collaboration among multiple oracles.
For example (see the image below), a certain real-world application scenario uses three different oracles—one writes valuation data into a contract, another is used for cross-chain synchronization of contracts, and the third synchronizes data back to the institution's accounting system.
The third oracle is a compliance oracle, equipped with automatic identity verification services, including "Know Your Customer" and anti-money laundering verification, which are particularly important for institutional investors. Other oracles are used for cross-chain data transfer; in this case, it is transferring from a private blockchain owned by the Australia and New Zealand (ANZ) Banking Group to the Ethereum Sepolia chain. The parties involved are two traditional financial giants—ANZ and Fidelity International, supported by the Hong Kong Monetary Authority (central bank).
Another case (see the image below) involves transferring tokenized Hong Kong dollars from a private chain to a public chain and injecting them into a tokenized fund. In this case, traditional financial giant UBS acts as the asset manager, while SBI Digital Markets serves as the fund distributor and custodian, with funds transferred through the Chainlink oracle network from the Arbitrum chain to the Ethereum blockchain.
Nazarov pointed out that the two cases mentioned involve the Hong Kong Monetary Authority and the Monetary Authority of Singapore. Last year, only Singapore, Hong Kong, and Dubai could carry out such projects. "Now we are also conducting related business in the U.S., with regulatory agencies involved."
Nazarov expects that this year, large-scale tokenization projects will officially land in the U.S., "Next year you will see competition, and the year after will see meaningful scale."
He added that within the next two to three years, at least $1 trillion in new tokenized assets will flow into the market, potentially reaching several trillion dollars. By then, tokenization will occupy a very important position in the crypto industry, enough to redefine the entire sector.
Nazarov stated that he appreciates Atkins and the current government's forward-thinking approach, which supports both cryptocurrencies and tokenization. "This is very important because cryptocurrencies are the current state of the industry, while tokenization is the future," he expressed in an interview with Cointelegraph.
Related: Analyst: The cryptocurrency market in the fourth quarter will be driven by legislation, ETP approvals, and stablecoin growth
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